UPDATE: Bank of America Downgrades Tyson Foods to Neutral, Lowers PT as Production Increases

In a report published Monday, Bank of America analyst Ryan Oksenhendler downgraded the rating on

from Buy to Neutral, and lowered the price target from $33.00 to $32.00. In the report, Bank of America noted, “We are downgrading our rating on Tyson from Buy to Neutral as industry data indicate a steep increase in production. In our view, this is likely to cause industry margins to peak sooner than we expected. Recent supply indicators including pullet placements (9-month supply indicator) and egg sets (10-week indicator) have increased faster than expected, with pullet placements increasing 8% y/y in July, following a 3% increase in June. This will result in a significant increase in production in spring and summer 2014. The industry does not appear to be making its seasonal cuts for fall when demand declines either, as egg sets have increased 5% y/y over the last 2 weeks and averaged 3.5% y/y increase over the last 10 weeks. While chicken producers are expected to benefit from a significant decrease in grain costs following a large US harvest, the increased production will weigh on pricing and limit upside to margins, in our view. We believe TSN is in a better position than most of its competitors due to its contracts (50% either cost plus or having grain adjustment), multi protein offerings, increasing value-added sales and international production, which may limit downside to profits and EPS.” Tyson Foods closed on Friday at $31.49.